The S&P 500 (and its Index ETF, the SPY) have recently formed a very bearish trading pattern, the so-called " Descending Triangle" (sometimes referred to as a "Descending Pennant"). Many times, the market drops through the bottom of this pattern, and heads down from there. See the graph immediately below.
But these are not normal times, like when the market reacts to good news with gains and to bad news with losses. This is a market dominated by a small, but powerful, agency called the Federal Reserve. Of course, most of you know that; and are just as sick and tired of the Fed Chairperson, Janet Yellen, as I am and millions of other investors are. She has lost respect from just about everyone that invests in stocks and bonds, except from the fat kats that benefit greatly from extremely low interest rates. They make $ billions on the money that we (the American people) lend them at ridiculously low rates.
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For what I think is a good analysis of today's short-term market, read the blog below.
Borrowed from Jack Steiman www.SwingTradeOnline.com
Friday September 16th 2016
The week was wild, but quiet when all was said and done. Last Friday (9/09/16) saw a strong move lower with no follow-through to the down side this week by the bears. Nothing unusual about that. The bears haven't followed through meaningfully in longer than I can remember. That said, this week saw the market move mostly lateral, meaning the bulls didn't just blast things right back up as they usually do with no resistance from the bears. The bears are fighting a little bit. More than we've seen in recent months. The volatility is higher, due to the behavior in the VIX from last week’s down side action. It's not as boring now as it was months prior. At least we're not trading day after day in a very tiny range of one percent or less. Two months of that was enough thankfully. I think folks like the volatility but let's be honest, going nowhere doesn't make trading much easier. One could say a bear flag is forming short-term, but that's irrelevant for one major reason. Fed Yellen.
Here she comes again with yet another “no-rate-hike” statement for our listening pleasure come next Wednesday. The action all of this week was due mostly to the market waiting to hear what fed Yellen will do to the fed market. Nothing matters any longer. Only the fed matters, and that's really sad-but-true statement about our current market. The market is sitting mostly flat as it awaits the good tidings from the mouth of our market leader. Nothing much will happen until she talks, and lets us all know what the future holds in terms of rates. The market on-hold is so boring, but so common now. So, yes, it's all about next Wednesday, so place your Russian roulette bets.
I think I know what Fed Yellen will say Wednesday. I think the market knows what she will say on Wednesday. The market is not expecting a rate hike. It's not going to happen for three simple reasons. ISM Manufacturing Report, ISM Services, and Retail Sales. All three reports were a disaster. Big misses the last week plus, and those misses were all on the most important aspects of our current economy. Everything is slowing, and doing so quite dramatically. We all know how she hates to raise rates when things are going well, so the odds of her raising rates, in my opinion, are zero. I could always be wrong, but that's my thinking.
In Yellen’s mind, a declining economy must be in concert with near zero interest rates. My guess is, she will also mention, once again, about how she will be watching future data on the economy, meaning she's not raising rates this year in all likelihood. She will need to see many consecutive months of improvement in all the key areas, and right now we're going the wrong way. The real question is what the market will do when she says no rate hike and talks about being data dependent. Will the market finally say it doesn't care and start moving towards truth, or will it stay in Disneyland? We'll find out soon enough. History says the market will blast up on the news. I'm not so sure this time, but we'll know on Wednesday.
You really have to wonder how a market can hang in there with news on the economy being so bad. I think the real concern in many ways is away from the economy. The real world says folks are struggling and doing so in a big way. Manufacturing is in a technical recession, based on it being below 50.0. A 49-reading a week is back. Services, which is most of our economy these days, went from 58 down to 51. A scary drop in such a small amount of time. Retail sales went away. The precipitous drop out of the blue has to be very concerning for our economy without any concerns for our few market. What is really going on? Rates have been low forever. There have been endless QE programs. Part of Europe, and all of Japan, is dealing with negative rates, yet nothing is coming alive economically on global level. Nothing seems to be working, so you have to wonder what the fed is thinking. None of her tricks are working. Central bankers around the world just can't get anything to work.
The real concern is to take care of the public, and that seems to be something that's not happening and many are suffering. I have no answers nor does the fed, it seems. That said, we'll see what Wednesday brings and how the market reacts.
Keeping it light here.
Peace,
Jack
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